Mission U and Other Salary Payment Schools and Taxes

MissionU.com is approaching financing of post-secondary education in a model that is adding more responsibility to the institution, and they are not alone; Purdue University is offering this as well.

Under Mission U’s plan, there is no up front tuition. Once you reach a salary of $50k/year, they take payment in an amount that is 15% of your salary for 3 years. So, it incentivises the school to make sure you have a successful career after graduation, with you finding a job as quickly as possible earning the best salary and short-term progression as possible.

So, if anyone is familiar with this sort of model, how does it get taken advantage of via taxes? Are there any means for you to use tax credits, tuition write off, or would this be in the realm of a student load repayment, which would be rather limiting.

Let’s say you earn exactly $50k/year and receive no raises for 3 years. That is $22,500 in payments over three years. At best, you stretch it over 4 calendar years if you start at some time that isn’t the beginning of the calendar year. From a perfect scenario, you start repayment on July 1 of the first year and complete it on June 30 of the final year.

Year 1: $3750
Year 2: $7500
Year 3: $7500
Year 4: $3750

With a cap on student loan interest and assuming it all gets counted as interest, you are only able to write off a very limited amount ($2k/year).

Can the repayment be written off under normal tax write off methods, can you qualify for any tax credits (very unlikely), can you use 529 funds to pay for it?

Anyone familiar with this?

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What stops you from immediately declaring bankruptcy upon graduating? Or is it still classified as a school loan that’s not dischargable?

I am not clear on this yet, at all. I think it will also potentially vary per institution. I could see Purdue having it classified that way as they are a traditional not-for-profit university, but I don’t think MissionU is. Although, there really wouldn’t be much benefit to you in filing BK, I think. If you are truly in a BK scenario it is because of either unemployment/under-employment or getting yourself way in over your head based on a presumably adequate income. So, if it is the first, the programs are meant to help you - they defer repayment and then it is still limited, it isn’t as if it accrues interest or anything, and then they are there to help you improve your employment. If they can’t get you there, then it is “forgiven” anyhow.

From what I read on their website they are a 1 year program. A minimum $22,500 for a one year program seems nuts to me. Others on FW have gone the WGU route and done a full degree for around that much (in 2-3 years).

This is more an exercise is figuring out how this sort of thing would work, not the merits of the institution. I think this sort of arrangement will be a more common one as time goes on.

Gotcha. I can’t speak to how these things work for MissionU, but the idea of money for school now with XYZ performance afterward is similar to how some grants for teaching work. You get money now with a promise that when you graduate you’ll do X. If you don’t do X then the money you received turns into a loan that needs to be repaid. I guess they could do the same, somehow.

So, by comparison, what tax options are available for the repayment, then? Just student loan interest deductions?

If I had to guess I’d say it is a personal loan guarantee. So nothing different than a car loan. They talk a lot on the site about hating student loans and their inability to be discharged. There’s this in the FAq:

After completing the MissionU program, you’ll pay back 15% of your salary for the first 3 years (36 non-consecutive months) in which you are making at least $50,000 per year. You additionally have up to 48 non-consecutive months of eligible deferment during which you would not make any contribution to MissionU, which is only eligible during months in which you are making less than $50,000 of annualized income. If you do not reach $50,000 in annualized income within 7 years of completing the program, you are absolved from the agreement entirely and owe MissionU nothing.